Economics Basics-2

Economics Basics-2 : Economics Basics-2 Economic Systems

What is an Economic System ? : What is an Economic System ? An economic system may be defined as a network of decisions and actions of economic and political players in production, distribution and consumption processes in a country.

Types of Economic Systems : Types of Economic Systems Different societies are organized through alternative economic systems. We generally distinguish two fundamentally different ways of organizing an economy. At one extreme, government makes economic decisions, with those on top of the hierarchy giving economic commands to those further down the ladder. At the other extreme, decisions are made in markets, where individuals or enterprises voluntarily agree to exchange goods and services, usually through payments of money.

Market economy : Market economy A market economy is one in which individuals and private firms make the major decisions about production and consumption. A system of prices, of markets, of profits and losses, of incentives and rewards determines what, how, and for whom.

Command economy : Command economy By contrast, a command economy is one in which the government makes all important decisions about production and distribution. In short, in a command economy, the government answers the major economic questions through its ownership of resources and its power to enforce decisions.

Mixed Economy : Mixed Economy No contemporary society falls completely into either of Command or Market polar categories. Rather, all societies are mixed economies, with elements of market and command. There has never been a 100 percent market economy.